Sunday, 18 December 2016

Why did underemployment fall?

This isn't a rhetorical question, I'd like to know the answer myself, so let's take a look!

In trend terms the unemployment rate has declined from 5.9 per cent to just 5.6 per cent over the past twelve months, which is great to see.

On the face of it this is excellent news, but the low unemployment rate has masked a rise in underemployment, representing spare capacity in the labour force, while the trend participation rate of 64.5 per cent is a deterioration from a year ago.

With so many of the new jobs created having been part time in nature, it shouldn't be a surprise to see that underemployment is higher today than it was at the peak of the mining boom.

That is, there are a lot of people that have found work, but they would like to work more hours than they are presently doing!

The good news is that measures of underemployment (and underutilisation) improved a bit over the three months to November, despite remaining too high for comfort, and have now been relatively unchanged for two years.

The quarterly improvement in the underemployment ratio was driven by South Australia and to a lesser extent Queensland.

This was offset to some extent by an increase in Tasmanian underemployment.

Elsewhere, underemployment seems to be tracking in a relatively narrow range in trend terms.

Underutilisation too high!

The ABS explains that the labour force underutilisation rate is defined as the sum of the number of people unemployed and the number underemployed, expressed as a proportion of the labour force.

The underutilisation rate can therefore also be seen as the sum of the unemployment rate and the underemployment rate.

South Australia and Queensland improved here too, while Tasmania still has the highest underutilisation rate of the states.

The outlier here is Western Australia where the underutilisation rate has trended up dramatically from a trough of only 6.8 per cent in May 2008 to 15.6 per cent in November 2016.

With resources construction likely to continue declining in WA over the next year the line could continue to track higher for a while yet.

The good news is that, as Queensland has shown since 2014, once resources investment stops declining, the labour market can steadily begin to right itself over time.